Theme 2: Managing Business activities Flashcards
(150 cards)
1
Q
3 Advantages and 2disadvantages of owners’ capital
A
Pros:
Keep 100% control
No interest
Instantly obtain the finance
Cons:
May be limited
Owner may lose their investment if the business fails
2
Q
DEFINE owner’s capital
A
The owner investing their own money into the business such as personal savings and inheritancee
3
Q
DEFINE retained profit
A
Profit kept by the business for reinvestment, as apposed to being distributed as dividends for shareholders.
4
Q
Why would larger businesses benefit more from sale of assets?
A
Start-ups usually have no assets which it can sell but larger businesses with significant assets will be able to sell spare or surplus assets like machinery, property or factory.
5
Q
3 Pros and 3 Cons of sale of assets
A
Pros: Significant amount of money depending on the asset, no interest, ownership not diluted
Cons: Limited to larger businesses with spare assets, may take a long time to sell it, losing the future use of asset
6
Q
3 Internal source of finances
A
a) Owner’s capital: personal savings, inheritance, credit cards
b) Retained profit
c) Sale of assets
7
Q
6 External sources of finances
A
family and friends
banks (like loans and overdrafts)
business angels (and venture capitalists)
other businesses (like debt factoring)
peer-to-peer funding
crowd-funding
8
Q
7 External methods of finance
A
loans (bank)
overdrafts (bank)
share capital (from business angels)
venture capital (venture capitalists)
leasing
trade credit
grants
9
Q
What 3 things can banks provide businesses
A
Loans
Overdrafts
Help with business plans
10
Q
What is debt factoring
A
financial support from another business, whereby a business sells their outstanding receivables to a debt factoring organisation AT A DISCOUNT TO RECEIVE CASH. The debt factoring business then are responsible for collecting the money.
11
Q
What is P2P funding
A
flexible and fast-growing way of raising loan finance from a group of people or institutions completed entirely online without traditional banking sectors.
12
Q
3 Pros and 3 Cons of P2P funding
A
Pros:
1. Lower interest rates than bank loans
2. Accessible source of funding
3, no dilution of ownership
Cons:
delay in receiving the funding
Arrangement fees
Not available to every type of business
13
Q
DEFINE business angels
A
Wealthy entrepreneurs who provide capital in return for a proportion of the business’s equity. They take a high personal risk in the expectation of owning part of a growing business.
This is a great source of finance for business start-ups who want small amounts of capital and get rejected by banks that want security and venture capitalists who only invest large amounts.
14
Q
2 Pros and 2 Cons of Business angels
A
Pros:
No repayments, as a share in the business is given out
Expertise
Cons:
Dilution of ownership and interference in decision-making
Finding a suitable angel can be difficult
15
Q
DEFINE crowdfunding
A
Specialised type of P2P funding, where “Crowd” of investors taking a small stake in a business by contributing to an online fundraising target, as opposed to business angels who takes a large stake in a small business.
16
Q
3 Pros and 2 Cons of crowdfunding
A
Pros
Large amounts of money
Publicity for the business
Can test out the business idea’s popularity by looking at the amount raised
Cons
No guarantee that enough amount is raised
Investors often need incentives such as shares or gifts
17
Q
Define bank loans
A
an amount of money borrowed for a set period with an agreed repayment schedule. Amount repaid depends upon how much is borrowed, for how long and the interest rates.
18
Q
Why well-established businesses benefit more from bank loans
A
Because banks prefer to lend to businesses with a track record of profitability which makes them more likely to repay
19
Q
3 Pros and 3 Cons of Loans
A
Pros
Large amounts raised
No dilution of ownership
Fixed interest rates= easy forecasting of future payments
Cons
Interest means a higher cost
Bank may reject if you do not meet the lending criteria
Lack flexibility
20
Q
Define share capital
A
Permanent investment in a company by shareholders, who get a share of the company, a return through dividends and the ability to sell shares at a higher price. This can be done through business angels, venture capitalists and stock market flotation.
20
Q
Which kind of business benefit more from share capital?
A
Both start-ups and established businesses. Start-ups can sell shares to external sources of finance like a business angel or venture capitalist WITHOUT incurring any debt.
21
Q
3 Pros and 3 Cons of share capital
A
PROS
1.Large amount of permanent funds
2.No debt
3.Dividends are not guaranteed depending on profitability
CONS
1.Dilution of ownership
2.Dividends need to be paid when profitable and are more than paying interests for loans
3.Retained profits used to pay dividends instead of reinvestment
22
Q
DEFINE venture capital
A
A form of “risk capital” that is invested in a risky business relating to future profits and cash-flow. Venture capitalists invest large amounts to take a share of profits and some control over its operation.
23
Q
2 Pros and 2 Cons for Venture capital
A
2 PROS
Large amounts
Investor expertise and support
2 CONS
Share of profits is taken
Loss of control
24
DEFINE bank overdraft
As a popular short-term finance used by all businesses, it is an agreement with the bank to withdraw funds from its account that exceeds the available cash balance, UP TO AN AGREED LIMIT.
25
When does bank overdraft benefit the most?
When a business encounters seasonal fluctuations in cash-flow or short-term cash-flow problems (such as many customers failing to pay on time). It helps to aid day-to-day running.
26
2 Pros and 2 Cons of overdraft
PROS
Easy to arrange
flexible
CONS
HIGH interest rates
Can be withdrawn at short notice
27
DEFINE leasing
Acquisition and usage of an asset over a fixed period of time with regular payments.
28
Why would a business need leasing?
A business can spread the cost of acquiring an expensive asset to coincide with the timing of revenue, avoiding cash flow problems.
29
2 PROS and 2 CONS of leasing
PROS
Imroves cash flow position when an expensive asset is needed
Technical support from leasing agreements
CONS
Never really owning the asset
Overall cost of leasing agreement higher than buying the asset
Termination fees add to costs if an asset is no longer needed
30
DEFINE trade credit
Where a business purchases goods and is allowed a period of time to pay instead of paying upfront which improves cash-flow position.
31
2 PROs and 2 CONS of trade credit
PROS
1. Improvement of cash-flow position (no upfront payment)
2. Useful for seasonal fluctuations when stock demand is high
CONS
1.not suitable for start-ups who lack trading history
2. Penalty fees if credit period is not adhered to
32
DEFINE a grant
A sum of money that is provided by the government and does not need to be paid back.
33
3 PROS and 2 CONS of grants
PROS
1. No interest charges. No repayment. YAY
2. "winning" a grant generates publicity
3. Maintain control
CONS
1. Not flexible as grants are given for specific reasons, such as encouraging businesses to locate in a specific area
2. Difficult to obtain
34
4 Long-term finances
Share capital
Retained profits
Venture capital
Long-term bank loans
35
3 Medium term finances
Bank loans
Leasing
Grants
36
6 short term finances
Owner's capital
Overdrafts
Loans
Trade credits
Debt factoring
Sale of assets
37
Factors to consider when choosing a type of finance
1. What for ( long term assets like factory or peak period that requires short-term increase in stocks?)
2. Cost (interest, dividends, control over business, extra fees?)
3. Flexibility (repay regularly or not? amount fixed?)
4. Type of business (limited companies find it easier than sole trader)
5.Availability/ difficulty to obtain (grants are difficult, beware of rejections from banks)
38
Main internal and external sources for start-up businesses?
INTERNAL
Owner's capital
Retained profits
EXTERNAL
Friends and family
Bank (loans, overdraft)
Venture capitalists +Business angels
Government grants
39
Working Capital
Current assets+ current liabilities
Measurement of liquidity and short-term financial health
40
Define LIMITED LIABILITY
Incorporated businesses have a sperate legal entity. Liability is confined to the amount invested. If a business fails, the owners will only lose the money that they have invested to pay off debts.
41
Define UNLIMITED LIABILITY
An unincorporated business where there is no legal distinction between the owners and the business itself. The liability of owners is not confined to the amount invested, meaning if the business fails, personal assets can be used to pay off debts regardless of the amount.
42
Suitable types of finance for businesses with limited liability?
RETAINED PROFITS
SALE OF ASSETS
BANK LOANS AND OVERDRAFTS
SHARE CAPITAL
Venture capital (in return for a share)
Leasing
Trade credit
grants
42
Suitable types of finance for businesses with unlimited liability?
Owner's capital
Family and friends
RETAINED PROFITS (less than limited liability businesses)
SALE OF ASSETS (less than limited liability businesses)
BANK LOANS AND OVERDRAFTS
Business angels
P2P
Crowdfunding
Leasing
Trade credit
grants
43
DEFINE business plan
A written document that describes the overall nature of a business and how it intends to develop
44
what is an opening balance
The cash at the start of a period
45
what is a closing balance
Opening balance + net cash-flow
46
Define cash-flow forcast
An estimation of future business cash flows
47
How to address short term cash-flow issues
Arrange short-term finance (inflow) such as overdrafts or reduce costs (outflow) such as marketing costs or other variable costs. But cutting marketing costs may harm future sales (inflow). Fixed costs like raw materials and wages can't really be lowered.
48
4 PROS and 5 CONS of cash-flow forecasts
PROS
1. Identify need for additional finance in response to potential shortfalls in cash
2. Ensures business can pay employee wages and suppliers which are crucial to the day-to-day running
3. Helps decision making
4. Can be used as evidence to persuade investors
CONS
1. Based on estimates which can be unreliable
2. Unforeseen factors like rise in cost of raw materials and External shocks cannot be predicted
3. Some customers may not pay in time which is unpredictable
48
4 PROS and 2 CONS of cash-flow forecasts
PROS
1. Identify need for additional finance in response to potential shortfalls in cash
2. Ensures business can pay employee wages and suppliers which are crucial to the day-to-day running
3. Helps decision making
4. Can be used as evidence to persuade investors
CONS
1. Based on estimates which can be unreliable
2. Unforeseen factors like rise in cost of raw materials and External shocks and customers not paying in time cannot be predicted
49
DEFINE sales forcasting
Process of predicting future sales of a business
50
4 aspects that links to sales forecasting in business planning
Human resources (peak period)
Capacity plans
Stock control
Profit budgets and other budgest (fall in sales= need for reduced costs to maintain profitability)
51
3 factors affecting sales forecasting
Consumer trend (fashions, tastes and preferences, seasonality)
Economic variables (interest rates, inflation, exchange rates)
Actions of competitors (new product, pricing, promotions, new competitor, competitor leaving etc)
52
2 difficulties of sales forcasting
Dynamic markets
Past performance is no guarantee of future performance (consumer trends, economic variables, competitor actions, external shocks....)
53
Sales volume vs Sakes revenue
Sales volume=amount sold= sales revenue/ selling price per unit
Sales revenue= selling price per unit x sales volume
54
Define fixed costs and variable costs
FIxed cost is a cost that does not change in relation to output such as rent, wages, interest on loan.
Variable cost is a cost that changes in relation to output, such as raw materials, packaging, and commissions.
55
Contribution per unit=?
Selling price per unit- variable cost per unit
56
2 formulas for total contribution
contribution per unit x units sold
OR
Total revenue (units sold x selling price)- total variable costs (units sold x variable costs)
57
DISTINCTION between profit and total contribution
Profit= total contribution- total fixed costs (assume fixed costs are all paid off, that's when the business breaks even and has extra money to make profits)
Total contribution =(no assumption that fixed costs are less than total contribution)
58
Define break-even point
when Total revenue= Total costs (FC+TVC), and the business is neither making a loss nor a profit.
59
Margin of safety=?
Actual output- break-even output level
60
Benefit of higher margin of safety
Lowers risk of making a loss if it is making inaccurate sales predictions
61
4 Limitations of break-even analysis
Variable costs may change (economies of scale)
Selling price will change
Sales are not equal to output
More than one product is sold= hard to calculate break-even
62
2 approaches to budgeting
Historical Budgeting (based on actual past results)
Zero Based Budgeting (Bottom up)
63
2 results of variance analysis
Favourable
Adverse
64
3 Cons of Budgeting
Data may be inaccurate
Inflexible decision making (Correct long term decisions may exceed the budget)
Time-consuming and demotivating to staff
65
Gross Profit
Sales revenue- cost of sales
66
Operating profit
Gross profit- other operating expenses
67
Profit for the year (net profit)
Operating profit- interest
68
Order of the "statement of comprehensive income"
Revenue
Cost of sales
gross profit
other operating expenses
operating profit
interest
profit for the year (net profit)
69
What does gross profit margin measure
The proportion of sales revenue that actually count towards gross profits. Gross profit/ sales revenue x100
70
Operating profit margin
Operating profit/sales revnue x 100
71
Profit for the year margin
net profit/ sales revnue x100
72
5 ways to improve profitability
Increase quantity sold
Increase selling price (depends on PED)
Lower variable cost per unit
Lower fixed costs
Increase output to spread fixed costs over more output
73
Difference between cash and profit
A profitable business can have cash flow problems with a high recorded profit value.
High total costs and paid immediately for stocks= high sales revenue BUT customer delay payment= cash flow problems
74
Statement of financial position (BALANCE SHEET)
Last day of financial year
Non-current assets+ Current assets+ Current liabiloties +Non-currrent liabailities= NET ASSEST
Share capital+retained profit=TOTAL EQUITY
NET ASSETS=TOTAL EQUITY
75
Non-current assets?
Assets that will be kept for more than a year (land, machinery, buildings)
76
Current assets?
Assets turned into cash within next year (e.g. cash, stock, receivables/debtors)
77
Current liabilities vs non-current liabilities
Current liabilities= short-term debts= Amounts owe to others due to be paid within the next year (overdraft, payables/trade creditors)
Amounts to be paid after the next year (long term loans)
78
Total equity?
Shareholders' funds
Share capital (amounts raised via shares) + retained profit( money that don't go to shareholders)
79
Liquidity=?
Liquidity is concerned with the ability of a business to convert its assets into cash to pay off short-term debts immediately (假設所有債必須到期）
80
Current ratio v Acid-test ratio
Current assets/ current liabilities
Current assets-stock/ current liabilities (stock is the least liquid asset)
81
Why we use current ratios etc to measure liquidity?
To know if a business is able to pay off short-term debts by turning assets into cash, measure how liquid assets (current assets) compare to its short-term debts (current liabilities).
82
3 ways to improve liquidity
Negotiate better credit terms with supplies (delay repayment of liabilities to save cash)
Reduce customer credit terms (accelerate current assets= quickly inflows)
Extending the limit of the overdraft (extra money to pay day-to-day bills)
83
Working capital (definition and formula)
Amount of money available to pay for the day-to-day running, e.g. wages, payment to suppliers
Working capital=current assets-current liabilities
Liquid assets like cash and stock MINUS short-term debts that are to be settled within next year EQUALS TO amount to support day-to-day running
84
4 Internal and 3 external causes of Business failure
Internal
1. Cash-flow problems= insufficient working capital (cash is the most liquid asset)
2. Lack of innovation in dynamic markets
3. Ineffective marketing like bad market positioning
4. Inefficiency (high unit costs+uncompetitive prices= low profit margins, growth= diseconomies of scale)
EXTERNAL
1.Economic factors (recession, exchange rates, interest rates)
2. Competition
3.External shocks
85
What is Job production
Involves producing items that meet specific needs of the customers, which are be-spoke, one-off and unique items like a wedding dress or building extension.
86
3 Pros and 4 Cons of Job production
PROS
1. Added value= quality=charge premium price
2. Increased job satisfaction=motivation
3. Flexible to tailor to customer requirements
CONS
1. Higher unit costs
2. Time-consuming
3. Labour intensive= higher labour costs
4. Difficult to recruit staff that are skilled enough for job production
87
What is batch production
Batch production occurs when many similar or identical items are produced in "batches" together, where each batch goes through one stage of production together.
88
4 PROS and 3 CONS of Batch production
PROS
1.Buying in bulk= reduced costs
2. Lower unit costs spread over larger output than job production
3. Greater use of machinery
4. Allows for worker specialisation and division of labour
CONS
1. Time-consuming to switch production from one batch to another
2. Requires business to hold higher levels of stock and WORK IN PROGRESS
3. Specialisation= Boring and repetetive= lower motivation
89
What is a flow production
Also known as mass production, it Involves a continuous movement (flow) of items through the production process. When one task is finished the next must start immediately and production lines are used to mass produce.
90
3 PROS and CONS of flow production
PROS
1. Greater economies of scale= lower unit costs than job and batch
2. Faster than job and batch
3. Less need for skilled employees= lower recruitment costs
CONS
1. Standardisation= lost of differentiation and uniqueness for customer= not suitable for art work
2. Expensive to set up production lines and buy high quality machinery
3. Lower flexibility
4. Interdependence of production stages= delays in any stage can cause the production line to slow down
91
WHAT is CELL production
Involves splitting production into multiple self-contained units called "cells" and each is responsible for a significant part of the production process. Rather than one person carrying out one task in flow production, team members in each cell are skilled at several tasks and allowing for job rotation.
92
3 PROS and 3 CONS for cell production
PROS
1. More responsibility within the production process+ job rotation+ working in a team= empowerment+motivation
2. Multi-skilled workers are more adaptable to future business needs
3.Each cell has "ownership" for quality= Better quality=customer satisfaction
CONS
1. Higher recruitment and training costs
2. Workers may feel exploited if corporate culture doesn't support trust and participation
93
Productivity=?
Productivity measures the link between inputs and outputs of a production process, e.g. output per employee or machine over a period of time.
94
4 Factors (and ways to improve) affectcting productivity
1. Production method (Flow>Batch>job)
2.Motivation
3.Invest in new technology
4. Specialisation
95
3 Drawbacks to ways to improve productivity
1. Cost of switching production method
2. Cost of investment in technology
3.Batch's specialisation= low motivation
96
How higher productivity=higher competetiveness
1. Higher labour productivity
2.Fixed costs (wages) spread across more units of output
3.Lower labour cost per unit
4.Lower unit cost
5. Assume competitive pricing (similar to rivals)
6. Higher profit margins
7. OR offer lower prices than rivals
8. Higher sales volume= higher revenue
97
What is efficiency and 2 prerequisites for MAXIMUM efficiency?
Efficiency is when a business UTLILISES (makes the best possible use of) limited resources and minimises waste, essentially producing more with less.
Max efficiency is when the business maximises its outputs from inputs and minimises unit cost. Higher productivity is key as it helps spread fixed costs over more units and maximises output.
98
4 factors influencing efficiency
1. Training= productivity=higher productivity
2. New technology= higher productivity
3. Relocation of production capacity to locations like overseas to cut labour and other fixed costs
4. Production method (Flow> Batch)
99
Labour-intensive vs Capital intensive production?
Labour intensive: high proportion of labour involved in production process
Capital intensive: higher proportion of machinery and lower proportion of labour involved
100
3 PROS and 4 COns of labour intensive production
PROS
1. Unit costs can still be low in low-wage locations overseas
2. Labour is a flexible resource (multi-skilling)
3. Labour can help with continues improvement if it is the heart of the production process
CONS
1. Greater risks of problems with employee/employer relationship
2. Higher costs of labour turnover
3. Absenteeism impacts significantly on productivity and thus efficiency
4. Continual High training costs
101
4 PROS and 3 COns of capital-intensive production
PROS
1. Economies of scale is more possible with more machinery
2. Potentially much higher productivity than labour
3. Less mistakes=quality
4. No worries about absenteeism and turnover
CONS
1. Significant initial investment and maintenance fees
2. Potential for obsolescence to reduce competitiveness
3. May generate resistance to change from the workforce
102
Capacity=?
Capacity measures the maximum output it can produce over a period of time, e.g. maximum customers a restaurant can serve per hour, or max seats of fans at each game in a stadium.
103
Why too high or too low capacity is bad?
Too high= spare capacity (>demand)
Too low= lose potential sales and revenues
104
Define CAPACITY UTLILISATION+ formula
measures the extent to which the total capacity is used over a period of time.
Current output/ max possible output x 100
105
3 reasons why capacity utilisation is important
1. Useful measure of efficiency as it measures unused resources
2.High utlisation = fixed costs spread over high output=lower unit costs= competitive pricing/ higher profit margin
3. IF fixed costs are high= High utlisation= reach high break-even output
106
2 PROS and 3 CONS of under-utilisation
CONS
1. Fixed costs spread over fewer units of output= higher unit costs=lower profit margin/ raise prices=low competitiveness
2.Too much spare capacity=boredom= no motivation
3. bad brand image (e.g. empty cafe= low quality)
PROS
4. EXTRA time to train workers/maintenance
5. Can take on new orders
107
3 PROS and 4 CONS Of Over-utilisation
PROS
1. Lower unit costs= higher profit margin/ lower prices= competitiveness
2.workers feel more secure= Increased motivation
3. Better brand image (full barber shop= good)
CONS
1. Overworked workers= demotivation
2. Bad brand image (if Too difficult to wait for a barber= turn away customers)
3. Cannot take on new orders/ forced to increase Overtime= higher labour costs
4. Rushed production= Bad quality
108
3 ways to improve capacity utlisation
1. Reducing capacity e.g. making staff redundant, selling unused assets
2. effective Marketing= higher demand= less spare capacity
3. Outsourcing (adapt to spikes in demand)
109
3 categories of stock
Raw materials
Work-in-progress
Finished goods
110
6 key terms from stock control diagram
Maxiumum level
Minimum level
Buffer stock
Re-order level
Lead time
Re-order quantity
111
Define buffer stock
The amount of stock held as a contingency, in case of supplier delays and unexpected orders. It ensures all orders can be met and all customers are satisfifed.
112
3 PROS and 3 CONS of buffer stock
PROS
1. can meet unexpected order
2. can continue production in case of supplier delay
3. placing fewer unnecessary orders which saves costs
CONS
1. Costs of storing buffer stocks
2. Deteroriating stocks esp. if perishable
3. Cash is tied up in stock which is the least liquid asset=bad liquidity
113
4 implications of poor stock control
1. Too little stock=low productivity= low competitiveness, reputational damage
2. Too much stock= high storage costs+obsolete= thrown away/ heavy discounts
3. Opportunity cost (money tied up in stocks)= cannot invest somewhere else
4. Most illiquid asset= Poor liquidiity
114
Define JUST IN TIME management
A lean production method whereby stock is delivered just before it is needed for production or sale, with zero buffer stock.
115
3 PROS and 3 CONS of JUST IN TIME management
PROS
1. Saves storage cost (rent, insurance)
2. Less chance of obsolete stock=waste minimisation
3. Better liquidity as cash isn't tied up in stock
CONS
1. More frequent orders= costs are now from delivery and supply
2. smaller orders each time= Reduced savings from bulk-buying
3. Little room for mistakes/ supplier delay
116
Define Waste Minimisation
Waste minimisation is concerned with reducing waste as much as possible, not just in stock but in overall production. Good stock control such as Just in time is effective in waste minimisation.
117
Positives of waste minimisation
Greater productivity+ Less unused resources= efficient
Less fixed costs from storage costs= lower unit costs
118
Define Lean production
Lean production is an approach that focuses on waste minimisation while ensuring quality, and minimising activities that do not add value to the production process like holding stock, IN ORDER TO achieve efficiency (high productivity, waste minimisation) which then saves unit costs. It also aims to be more responsive to market needs.
119
3 methods of lean production
1. JIT stock management
2. Quality assurance + Total quality management (TQM)
3. Kaizen (continuous improvement)
120
3 Benefits of lean production
Higher efficiency (higher productivity and waste minimisation)
Lower unit costs
Better quality
121
Define QUALITY
Quality is about meeting customer needs and expectations.
122
4 main quality management techniques
QUALITY control
Quality assurance
Total quality management
Quality Circles
123
Define quality control
An approach to managing quality by inspecting products at the end of the production line (FINISHED PRODUCTS) before it is delivered to customers.
124
2Pros and 3Cons of quality control
PROS
1.Since every finished product is tested, effectively preventing faulty products from reaching customers
2. Inspectors are responsible so production is not disrupted, maintaining productivity of workers
CONS
1, IF only samples are checked then there remains a risk
2.worker complacency since not all workers are encouraged to take responsibility for quality, knowing there is an inspector to help them
3. Labour costs from inspectors
125
Define Quality assurance
Also known as "Zero-defect approach", it is an approach that aim to build quality into the production process, by organising every stage of production to get the product "right first time" and emphasises self-checking.
126
3 PROS and 2 CONS of Quality Assurance
PROS
Reduced costs (NO defects=waste minimisation)
Saves labour costs from inspectors
Improved motivation (empowerment)
CONS
Slower productivity
extra responsibility by self-checking= unfavourable for staff
127
Quality circles?
An quality management approach where groups are organised to identify potential improvements and resolve quality issues.
128
2 PROs and 3CONs of quality circles
PROS
Improved motivation
More teamwork
CONS
who to select into the circle? Employees feel left out
Lower productivity due to meetings
Do I implement bad suggestions? Resentment from employees
129
Total Quality management definition
A philosophy which takes a "total" view of quality across the whole organisation and not just the responsibility of the production department and aims to create a culture of quality by putting quality at the heart of everything the business does.
130
3 PROS adn 2 CONS of TQM
PROS
1. Increased efficiency
2, Reduced costs from inspectors
3. Quality= customer satisfaction
CONS
1. Takes a long time to establish a culture of quality
2. Money needs to be spent on training and planning the TQM approach
131
Define Kaizen
A philosophy that aims to create a culture of continues improvement within the organisation with everyone always looking for small ways to improve the business, which eventually lead to an overall improvement in quality.
132
2 overall benefits of Quality management
1. Added value/ USP/ differentiaion of"high quality"--> lower PED-> charge premium price
2. reduced defects and returns--> less waste higher efficiency+ less costs associated with returns
133
Inflation definition
Inflation is a sustained rise in an economy general price level. As each pound or dollar buys fewer products, the purchasing power of money falls.
134
5 and 1 benefit of Inflation to a business
BENEFITS
1. Favour business as borrowers at the expense of savers because the real value of existing debts are eroded
COSTS
1.Higher interest rates make it harder to borrow
2, strikes as wage demands increase in response to increasing cost of living-->production disrupted
3. Recession-->People save money-->Lower capital investment
4. Less disposable income-->lower levels of consumer spending--> fall in sales for businesses
5. Bad overseas trading-->If inflation is higher in the UK than it is elsewhere, then the UK’s goods become comparatively more expensive-->fall in export sales
135
Exchange rate definition
The price of one currency in terms of another.
136
How do demand and supply forces affect exchange rate
?
A rise in demand for pounds will lead to an appreciation of the pound where a pound can buy more of another currency.
A fall in demand for pounds will lead to depreciation of pound currency.
137
What does pound appreciation mean for UK businesses?
Strong pound= Imports cheaper, exports dearer(get more money in return from foreign companies)
138
What does pound appreciation mean for UK businesses?
Strong pound= Imports cheaper, exports dearer(get more money in return from foreign companies)
139
What does pound depreciation mean for UK businesses
Weak pound= Imports more expensive, exports get less money :(
H/E, Uk exports may become popular in the global market and then sales may rise.
140
Interest rates
the reward for saving and the cost of borrowing+ are expressed as the % of money saved or borrowed.
141
3 ways interest rates affects businesses
1. Loan repayments
2. Consumer confidence (low interest rates= increase in demand for products that are traditionally financed like cars)
3. Disposable income->demand for luxuries (high-interest rates= higher mortgage repayments= lower disposable income in population)
142
2 ways taxation from government affect businesses
1. Income tax--> disposable income-->demand
2. VAT-->rise in business costs--> increase in prices
143
The business cycle
The business cycle is about the rate of change in the value of economic activity, usually measured by GDP growth over time.
slump (trough), recovery, boom (peak), recession
(slump=low point, boom=high point)
144
6 aspects of different stages in business cycle
Consumer spending (high levels in boom)
Business confidence in investment (most condient in boom)
Business profits (costs)
Prices (boom: faster increase, slump: starts to fall)
Unemployment (recession, slump)
Business failure (slump)
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How does high competition affect businesses
1. Lower customer loyalty (e.g. shop around for best deal)
2. Higher price elasticity of demand
3. Higher need of innovation= higher costs (H/E innovation can improve reputation, loyalty and differentiate itself)
4.
146
Define competitiveness and competitive advantage
Competetiveness is the ability to provide better value to customers than rivals. a business has a competitive advantage If a business is more competitive than the rest of the market over a SUSTAINED period.
147
How will a smaller and bigger business adopt different strategies to gain competitive advantage in a GROWING, MASS MARKET?
Smaller: add value, USP, differentiate to build loyalty (costs and prices are too hard to compete with big businesses
Larger: cost leadership from Porter's generic strategies to be the lowest cost producer--> lower prices--> win over customers due to high PED
